Japanese Basic Policy on China Incident was formulated at the Imperial
Conference on 11 January 1938 (See Appendix 1)

The ultimate purpose of this policy was for Japan, in cooperation with
China and Manchukuo, to form an axis for peace in the Orient. To this end,
the policy provided for peace terms to be offered if Chiang Kai-shek's
government were to sue for peace. Otherwise, the basic policy stipulated
that Japan would seek to destroy the Chiang regime

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and, at the same time, help to establish a new central Chinese government
with which Japan intended to enter into friendly relations.

The war situation immediately after the decision on the above-mentioned
basic policy progressed very favorably for Japan. In addition, Chiang Kai-shek's
regime, which had moved to the hinterland, was on the decline, while the
program for establishing a new government in harking was progressing steadily.
This was the background when the 16 January statement was made, "We
refuse to deal with the Nationalist Government."

Japanese
Navy Policy for China Incident, May 1938

The China Incident was being handled in accordance with the basic policy
adopted on 11 January and subsequent decisions made at occasional meetings
of the Five Ministers' Conference. However, there were indications that
the Army was concentrating the right of command,, both military and political,
in the hands of the supreme commanders in the field. There were indications
also that the Army was attempting to rule North China as a sort of second
Manchukuo. The Navy feared that this administrative dominance by the Army,
especially by commanders in the field, might spread even to the Shantung
area as well as to Central and South China. It was felt that this might
cause policies to be followed which would deviate from the original policies
established by the Central Authorities. Consequently, the Navy established
its own policy toward China on 25 April, known as the "Policy of the
Navy for the China Incident."

The gist of this policy was as follows:

1. General Policy:
The Navy will adhere strictly to the basic policy formulated by the Imperial
Japanese Government for dealing with the China Incident. The entire Navy
will unite in steering a moderate course and in taking timely and proper
measures.

2. Political Policy:
The North China provisional Government will be made the structural foundation
of a central government of China. Efforts will be made to win leading figures
in China to the Central China

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Provisional Government and foster its development into a powerful regime.
Establishment of the special municipality of Tsingtao will be effected.

3. Economic Policies:
Economic Policies will be centered on full utilization of the two national
companies: the North China Development Company and Central China Development
Company (Relatively moderate policies were also adopted on such matters
as land transportation, harbor facilities, communications, marine products,
aviation, marine transportation and finance.)

4. Policy for guiding various organs dealing with China.
The Navy is opposed to the apparent attempt of the Army authorities in
North China to force such organs to come under the exclusive guidance of
the army commanders in the field. The guidance of the national policy companies
in North and Central China should be left solely in the hands of the Central
Authorities. The Navy is also opposed to the direction of Central China
affairs by Army authorities in North China. In the event that a political
agreement is made with China, the signing of such an instrument by either
the Army or Navy Supreme Commander should be avoided. As a rule, some civil
or foreign. affairs officer should do this.

A Five Ministers' Conference was held from 24 June to 19 July 1938 and
the following matters were decided upon: (See Appendix 12)

Policy to be followed for the settlement of the China Incident, decided
on 24 June.

Measures to be taken in the event that the existing Central Government
of China capitulated, decided on 8 July.

Measures to be taken in the event that the existing Central Government
of China did not surrender, decided on 8 July,

Fifth column activities in China to cope with the situation, decided
on 8 July.

The foregoing were basic political and military policies adopted to
prosecute the war against China. Militarily, their ultimate purpose lay
in smashing the Chiang Kai-shek regime and terminating the war in the course
of the year by capturing Hankow. It was assumed at the time that this would
bring military operations to a close. Politically, these policies aimed
at fostering the development of a new central government.

National
Policy Toward China during and after October 1938

In the main, Japan's policies toward China adhered to the lines

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formulated in January and June. However, there were some differences
between the military and the civil officials. To eliminate those differences,
the policies were reexamined and reformed at a Cabinet meeting on 21 October,
and the results were circulated among all officials of government agencies.
The gist of these decisions was as follows:

Japan and China would eliminate all standing differences, reestablish
friendly relations from a broad point of view and be brought into perfect
harmony on the basis of mutual respect of sovereignty and territorial integrity.
To this ultimate end, necessary steps would first be taken to insure against
recurrence of any incident between the two nations.

Japan would foster the establishment of a new regime in China and cooperate
with it in the reformation of China. The reformed China would root out
anti-Japanese and pro-Communist ideas, rid itself of the tendency to rely
upon Europe and America and display true friendliness toward Japan and
Manchukuo. Around the axis of cooperation thus created between Japan, Manchukuo,
and China, Japan would further organize a union of Asiatic nations for
the establishment of lasting peace in Asia. To this end, Japan would first
encourage the Chinese masses to turn from their anti-Japanese and pro-Communist
attitude to a pro-Japanese and anti-Communist one. Then Japan would seek
to strengthen China's ties with Japan and Manchukuo in areas where solidarity
was necessary and establish a firm joint national defense zone encompassing
Japan and China in a specific area. At the same time, Japan would secure
a base for economic expansion in China.

As may be seen from the above, the idea behind Japan's policy toward
settlement of the China Incident at this juncture had as its goal the formation
of a Japan, Manchukuo and China bloc as a step towards the creation of
a union of nations in East Asia.

Military
Operations against China during 1938

The battle for Hsu-Chou

Early in April the Chinese Army reported that it had crushed Japanese
forces at Tai-Erh-Chuang. At the same time, it concentrated as many as
several hundred thousand troops in the southern part of Shantung Province
in an attempt to destroy the Japanese forces there. The Japanese forces,
commanded by General Hisaichi Terauchi in North China and by General Shunroku
Hata in Central China advanced

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and encircled the Chinese forces in the vicinity of Hsu-Chou. With the
fall of this city on 19 May the operations ended successfully in a large
scale annihilation of Chinese troops. Chinese forces, in this operation,
intended to destroy piecemeal the Japanese forces split in North and Central
China before the two could unite. To accomplish this the Chinese had at
their disposal about 39 divisions under the command of Li Tsung-Jen as
well as the advantage of the Hsu-Chou defense line, the so-called Chiang
Kai-shek line occupying the-central North China plains. Contrary to expectation
the Chinese forces were enveloped and annihilated by the Japanese forces.

This operation not only caused the enemy to suffer tremendous losses
but also won for the Japanese the great advantage of opening a connecting
line between North and Central China by securing control of the Lung-hai
railway and extending the Tientsin-Pukou railway leading to Nanking.

Hankow
Operation (Yangtze Upstream Operation)

Following the old saying that "The one who controls the Wuchang-
Hankow area controls China," Japanese forces conducted these operations
with a view to achieving the over-all political objective of bringing Chiang's
regime to its knees by gaining control of the Yangtze River and capturing
Hankow.

Having finished operational preparations, Japanese forces stationed
in the sector north of the river started from Shu-Cheng on 9 June and advanced
southward, capturing strategic points one after another. Troops in Central
China, in cooperation with the Navy, advanced along the Yangtze River occupying
Anching, Hu-Kou and Chiu-Chiang in succession, and finally occupied Jui-Chang
on 24 August. Meanwhile another unit landed on the west shore of Lake Po-Yang
and captured Hsing-Tsu on 21 August. China had about 20 divisions, totaling
100,000 troops, commanded by Pai Chung-hsi, in the area north of the Yangtze
River, about 40 divisions totaling 200,000, commanded by Chen Cheng, in

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the area south of the river and about 10 divisions of reserves in the
Wuchang-Hankow area. Thereafter these forces were gradually reinforced
and it was believed that by mid-October the Chinese had a total strength
of approximately 70O,000 on both sides of the Yangtze.

In all areas fairly heavy battles were continuously fought, and, about
17 October, the Chinese forces began to retreat. The vanguard of the Japanese
forces advancing along the northern banks of the river broke into Hankow
on 25 October.

Throughout the period of these operations, the Yangtze River units and
air units under the command of the Third Fleet executed vigorous attacks.
They supported army forces by destroying the Chinese air forces and gaining
aerial supremacy, destroying Chinese naval forces on the Yangtze River,
opening waterways in various points.

Canton Operation

The Canton Operation was originally planned as an effective means of
attacking Chiang Kai-shek's forces on both flanks and overthrowing them
by serving the main supply route. Since the operation was executed at about
the same time as the Yangtze Upstream Operation (the operation for the
occupation of the three Wuhan cities), Chinese forces were diverted by
the two operations and rendered incapable of concentrating upon either
front. For this reason, Chinese forces were under-strength in the Canton
area. Through execution of a lightning action, rapid progress was made
in the Canton Operation by the Japanese forces.

The Chinese forces in this area, which at that time consisted of some
six divisions of the Fourth Route Army, were under the command of Yu Hanmou.
In the Bias Bay area, east of Hongkong, where the Japanese forces executed
a surprise landing, there was only one Chinese division. Three Japanese
divisions under the command of

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Lt. General Furusho of the 21st Army, supported by the South China Navy
Force (Fifth Fleet) of the China Area Fleet and Formosa-based as well as
carrier-based Navy air units, carried out the surprise landing at Bias
Bay at dawn on 12 October without encountering any sizeable resistance.
Thereafter, Japanese forces continued their rapid advance, and by 21 October
had captured Canton. On 23 October they reduced the strategic fortress
of Humen on the Chu River, and on 25 October captured Samshui, another
key point to the west of Canton. They then carried out mopping-up operations
throughout the area with good results.

This operation, as had the capture of Hankow, dealt a tremendous blow
to the Chiang Kai-shek regime, but failed to achieve its surrender. Moreover,
although the operation severed British and French supply routes to Chiang
by isolating Hongkong and Macao, it also helped to increase British and
French anti-Japanese feeling to a considerable degree. As a result, the
aid-to-Chiang routes gradually shifted toward French Indo-China and Burma,
rendering it necessary for Japanese forces to extend their operations westwards.

Strategic and
political achievements

The first line of our front in the north at the end of 1938 began at
a point west of An-Pei, Sui-Yuan Province, extended southward roughly along
the Yellow River, and turned to the east at Tung-Kuan. From Kai-Feng the
line extended southward along the Peiping-Hankow railway line, reaching
Yo-Chou on the Yangtze River, There it turned eastward, passing through
Yung-Hsiu on the Nanchang-Kiukiang railway line and reaching Hangchow.
In South China, a line forming an arc centered on Canton was secured. The
line started at Ta-Chiao-Tou Island in the south, extended westward to
Samshui, passed north of Hua-Hsien and Tsung-Hua, made a loop north of
Ping-Ling-Hsu and reached Ping-Hai Peninsula.

At sea, almost the entire coast from Leichou Peninsula to North

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China was placed under blockade, while on land an estimated 2,000,000
man loss was inflicted upon Chinese forces through the three large-scale
battles and mopping-up operations. Chinese aircraft destroyed by the Japanese
Navy amounted to some 1,500 planes while practically the entire Chinese
Navy was either destroyed or captured. Thus the command of the sea as well
as the air was secured by Japanese forces.

As for the political achievements, the attempt to overthrow the Chiang
Kai-shek regime failed, However, Wang Ching-wei, another leading Chinese
political figure, left the anti-Japanese camp at the end of the year and
advocated cooperation between Japan and China. Thus, prospects for development
of the nascent government at Nanking appeared bright.